Tether and it’s stablecoin USDT have always claimed that each of its tokens is backed by one USD. However, it changed the backing to include loans from companies it is affiliated to on March 19th.
That’s not all on USDT backing as Stuart Hoegner, the company’s general Counsel revealed in an affidavit on March 30, that the stablecoin is only backed by 74% of its fiat equivalent.
Hoegner filed the affidavit to stay a order which would force Bitfinex and Tether to make the certain document available by the 3rd of March. The company had received an Order which was filed last week to Show Cause to vacate or modify the NYAG’s ex parte order.
As it is, Tether and Bitfinex are affiliated as they share the same owners as well as executives and Hoegner happens to be General counsel to the two companies.
In the affidavit, Hoegner revealed that the USDT was not backed by cash or liquid assets a 100% any more. Hoegner revealed under a subheading bearing the title, “Tether Holders Are Not At Risk, “As of the date [April 30] I am signing this affidavit, Tether has cash and cash equivalents (short term securities) on hand totaling approximately $2.1 billion, representing approximately 74 percent of the current outstanding tethers.”
Problems started when claims that Bitfinex used reserves to sort out some issues that resulted from a faulty outsourcing agreement back in 2018. Bitfinex and Tether are still in the process of refuting these claims.
However, Zoe Phillips of law firm Morgan Lewis, an attorney representing Tether wrote in a memorandum of law stating in support of the defendants’ order to show cause that there was no need for Tether to hold $1 for every USDT it issues.
She also claims that while the Attorney General believed that Tether must hold in fiat currency the equivalent of a dollar for every USDT it issues, the allegations are wrong.
She added that Bitfinex and Tether were represented by independent counsels and that the terms of their credit agreement were negotiated on reasonable commercial terms. In support of Philips claims Hoegner confirmed that the terms of the credit agreements were negotiated independently. He also added that Tether had revealed on its website in March that it was no longer a 100% backed by the USD.
Hoegner further revealed the terms of Bitfinex and Tether lending agreements in his affidavit. He claims that the terms were made to protect the crypto market.
Considering the fact that the two companies are huge players in the cryptosphere this draws some concerns. He however claims that it is important to Tether and its holders “that one of the dominant trading platforms of tethers has sufficient liquidity for normal operations.”
Hoegner’s claims that tether’s holders are not at risk doesn’t seem to calm the panic as according to Whale alert huge amount of USDT have been moved from one exchange to another. The rise in USDT translation volume may just be an indication that there is a slight panic amongst holders brought on by the NYAG lawsuit.
Do you think that this update would effect the USDT? Share your thoughts with us in the comment section below.